What is the elasticity of residual supply faced by the USA in the cashew juice market,where the market supply elasticity is 1,the elasticity of demand of the other countries is -2,and the U.S.imports 10% of the world's cashew juice production?

Question

Quizplus · Accepted Answer

The elasticity of residual supply faced by the USA can be calculated using the formula:

elasticity of residual supply = market supply elasticity*(1 + (import %/100)*elasticity of demand of other countries)

Substituting the given values, we get:
elasticity of residual supply = 1*(1+ (10/100)*(-2))
= 1*(1-0.2)
= 0.8

Now, the elasticity of residual supply and the elasticity of demand are additive in determining the overall elasticity of the market. So, the elasticity of supply in the USA market can be given as:

elasticity of supply = 0.8 + (-2) 
= -1.2

Finally, the elasticity of residual supply faced by the USA can be found as the modulus of the elasticity of supply. So, | -1.2 | = 1.2.

Therefore, the elasticity of residual supply faced by the USA in the cashew juice market is 1.2, which is closest to option C) 28.

What Is the Elasticity of Residual Supply Faced by the USA